Draft Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024
Draft Tax Credits, Child Benefit and Guardian's Allowance Up-rating Regulations 2024
(9 months, 3 weeks ago)
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The Financial Secretary to the Treasury (Nigel Huddleston)
I beg to move,
That the Committee has considered the draft Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024.
The Chair
With this it will be convenient to discuss the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024.
Nigel Huddleston
As always, Sir Charles, it is a pleasure to serve under your chairmanship. The regulations will be of considerable benefit to our constituents who rely on tax credits, child benefit and guardian’s allowance, and to those who pay national insurance contributions. Regulations are made each year to set national insurance contributions thresholds and uprate tax credit, child benefit and guardian’s allowance.
First, the Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024 set the national insurance contributions limits and thresholds of a number of national insurance contribution classes for the 2024-25 tax year, with all limits and thresholds remaining fixed at their existing level. The regulations also make provision for a Treasury grant to be paid, if required, into the national insurance fund for the same year—a transfer of wider Government funds to the national insurance fund—and for the veterans employer national insurance contributions relief to be extended for a year until April 2025. The scope of the regulations is limited to the 2024-25 tax year.
National insurance contributions are social security contributions. They allow people to make contributions when they are in work in order to receive contributory benefits when they are not working, such as after they have retired or if they become unemployed. NICs receipts fund contributory benefits, as well as supporting funding to the NHS.
On the details of the NICs for employed and self-employed people, the primary threshold and lower profit limits are the points at which employees and the self-employed start paying employee class 1 and self-employed class 4 national insurance contributions respectively. At the autumn statement 2022, the Government announced their intention to maintain the primary threshold’s alignment with the income tax personal allowance, with both rates being fixed at £12,570 until 2028.
Fixing the primary threshold at £12,570 does not affect an individual’s ability to build up entitlement towards contributory benefits such as the state pension. For employees, this is determined by the lower earnings limit—which will remain at £6,396 per annum, or £123 per week, in 2024-25—and for self-employed people by the small profits threshold, which will remain at £6,725 in 2024-25. Fixing the thresholds will mean that more lower-earning working people will gain entitlement to contributory benefits and build up qualifying years for their state pensions.
The upper earnings limit, which is the point at which the main rate of employee NICs drops to 2%, and the upper profits limit, which is the point at which the main rate of self-employed NICs drops to 2%, are aligned with the higher rate threshold for income tax, at £50,270 per annum. It was announced previously that those thresholds would be fixed until April 2028, as part of the Government’s commitment to supporting the public finances.
At the autumn statement 2023, the Government also announced that from 6 April 2024 self-employed people with profits above £12,570 will no longer be required to pay class 2 NICs, but will continue to accrue and receive access to contributory benefits, including the state pension. Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the state pension, through a national insurance credit, without paying NICs as they do currently. Those with profits under £6,725 who choose to pay class 2 NICs voluntarily to get access to contributory benefits, including the state pension, will continue to be able to do so.
I turn now to employers NICs. The secondary threshold is the point at which employers start paying employer national insurance contributions on their employees’ salaries. At the autumn statement 2022, the Chancellor announced that this threshold will remain at £9,100 in 2023-24 and will be fixed at this level until 2028. That supports the public finances while ensuring that the largest businesses pay the most. The employment allowance, which the Government raised from £4,000 to £5,000 in April 2022, means that the smallest 40% of businesses with employer national insurance contributions liability pay no employer NICs. The regulations also fix the thresholds for employers of employees eligible for NICs reliefs—the reliefs for employers of under-21s, under-25 apprentices, veterans, and new employees in freeports and investment zones—at their 2023-24 levels.
The majority of national insurance contributions are paid into the national insurance fund, which is used to pay the state pension and other contributory benefits. The Treasury has the ability to transfer funds from wider Government revenues into the national insurance fund. The regulations make provision for a transfer of this kind, known as a Treasury grant, so that up to 5% of forecasted annual benefit expenditure can be paid into the national insurance fund, if needed, in 2024-25. A similar provision will be made in respect of the Northern Ireland national insurance fund. The Government Actuary’s Department report laid alongside the regulations forecasts that a Treasury grant will not be required in 2024-25 but the Government consider it prudent, as a precautionary measure, to make a provision for a Treasury grant at this stage, which is consistent with previous years.
The regulations also make provision for the national insurance contributions relief for employers of veterans to be extended for a year until April 2025. This measure means that businesses pay no employer NICs—at a rate of 13.8%—on salaries up to the veterans upper secondary threshold of £50,270 for the first year of a qualifying veteran’s employment in a civilian role. The relief is part of the Government’s commitment to make the UK the best place in the world to be a veteran, and is intended to further incentivise employers to take advantage of the wide range of skills and experience that ex-military personnel offer. It supports those who have already given so much to this country, and helps to unleash the great skills and huge potential of our service leavers.
Mrs Natalie Elphicke (Dover) (Con)
The veterans relief that the Minister just mentioned is clearly very welcome, in addition to the other uprating of reliefs. Finding a route back into work for those who are rough sleeping or homeless is a particular issue for veterans. Will the Minister explain why the relief applies only to the first year of employment and whether any consideration has been given to assisting veterans on their return to work following their homelessness journey?
Nigel Huddleston
The Minister for Veterans’ Affairs has explained the wide variety of other measures that we have to support veterans. As I said, it is the Government’s ambition to make sure that we treat our veterans with incredible respect and that the UK is the best place in the world to be a veteran, so there are other measures in place. The relief measure was always intended to be temporary. It was announced as such, but we are now extending it. I cannot promise that further extensions will or will not be forthcoming—that would be for other decisions—but I think the whole Committee agrees with my hon. Friend’s wider point about respect for veterans.
I turn now to the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024. The Government are committed to delivering a welfare system that is fair for claimants and taxpayers while providing a strong safety net for those who need it the most. The regulations will ensure that the benefits for which His Majesty’s Treasury Ministers are responsible and that HM Revenue and Customs delivers are uprated by inflation in April 2024. Tax credits, child benefit and guardian’s allowance will increase in line with the consumer prices index, which had inflation at 6.7% in the year to September 2023. Uprating by the preceding September CPI is the Government’s typical approach.
To reject the regulations would mean that HMRC-administered benefits do not rise at all next year, making our constituents worse off. As usual, the Department for Work and Pensions led a separate debate in this place on the regulations for uprating other benefits and the state pension, for which the Secretary of State for Work and Pensions is responsible, on 31 January 2024. The DWP’s working-age benefits will also rise in line with the 6.7% CPI rate this year.
In summary, the proposed legislation fixes all the limits and thresholds for national insurance contributions at their 2023-24 levels for the 2024-25 tax year; makes provision for a Treasury grant; extends the NICs relief for employers of veterans; and increases the rates of tax credits, child benefit and guardian’s allowance in line with prices. The legislation enacts announcements from the autumn statement and previous fiscal events. Without it, HMRC will be unable to collect NICs receipts, and tax credits, child benefit and guardian’s allowance will be frozen at 2023-24 levels. I therefore hope that colleagues will join me in supporting the regulations.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to serve on the Committee with you, Sir Charles. I welcome the opportunity to address, on behalf of the Opposition, the measures laid out in the two statutory instruments.
First, as we heard from the Minister, the draft Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024 give effect to the annual re-rating of national insurance contributions limits and thresholds for the purposes of calculating class 1 NICs liability for the coming tax year. As we also heard, the regulations allow for payments of a Treasury grant not exceeding 5% of the estimated benefit expenditure for 2024-25 to be made into the national insurance fund, while also making provision for Northern Ireland. Finally, the regulations extend the availability of the zero-rate relief on secondary class 1 contributions for employers of veterans for the tax year 2024-25.
Members will recall that at the autumn statement 2022 the Chancellor announced, as the Minister said, that national insurance contribution thresholds that are in line with income tax will be fixed at their 2023-24 levels until 2027-28. As the Office for Budget Responsibility pointed out at the time, the freeze to national insurance thresholds and limits meant that
“all the main personal tax thresholds are now frozen in cash terms across our entire forecast period”
through to 2027-28.
The freezes to allowances, limits and thresholds provide the context for why the Chancellor’s boasting about the cut in the rate of national insurance at the autumn statement 2023 rings so hollow. As Paul Johnson from the Institute for Fiscal Studies said, the changes made at the statement
“won’t be enough to prevent this from being the biggest tax-raising parliament in modern times.”
The truth is that after 25 tax rises in this Parliament alone, the tax burden remains on course to be at its highest since the second world war.
One of the central reasons for that is the freeze to income tax and national insurance thresholds through to 2027-28. That fiscal drag means that, on average, personal taxes will go up by £1,200 per household even after the 2% cut to national insurance in January. The Government are, in effect, giving with one hand while taking with the other. Indeed, after the autumn statement the IFS noted that tax reductions announced in November would give back
“less than £1 of every £4 that is being taken away”.
I have heard the Minister say several times in previous debates that Members should compare our December and January pay slips; frankly, I am more concerned about the post-tax income for low and middle earners than I am for MPs. The truth is that even people in this place on very good salaries will see their tax burden rise as a result of the Government’s freezes to thresholds, but the impact on low and middle earners is stark. Does the Minister agree with consumer finance expert Martin Lewis on this? Mr Lewis recently said that even with the reduction in national insurance, people on incomes of between £12,500 to £26,000 will be worse off, looking at this year in isolation, as a result of threshold freezes and fiscal drag. Does the Minister agree with that or does he think Mr Lewis is mistaken?
On a point of clarification, I understand that last year, through the Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2023, the Government made provisions for classes 2, 3 and 4 national insurance contributions. Will the Minister explain the procedural reasoning for why such provision has been omitted from this year’s regulations?
Secondly, the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024 set the annual rates of working tax credit and child tax credit and the weekly rates of child benefit and guardian’s allowance for the coming financial year. Amid a damaging cost of living crisis, we support the increases, as any help for people who are struggling in the face of persistently high energy, food and housing costs is particularly needed at this time. We know that 8 million households received their final means-tested cost of living payment this week. That support has been critical for millions across this country, including many children. I know from my constituency that many people continue to struggle to provide for themselves and their families. I would therefore be grateful if the Minister could share with us his assessment of the impact of the end of the cost of living payment on levels of child poverty.
Nigel Huddleston
I thank my opposite number, the hon. Member for Ealing North, for his contribution, as well as my hon. Friend the Member for Dover. Perhaps we could at some point have regulations on reducing the length of the names of regulations, because we have all had a bit of a mouthful today.
The hon. Gentleman raised many points not strictly relevant to the scope of the regulations, and many points that we have rehashed often, but I will repeat that the reason why taxes have been higher is because of the significant amounts of support that we gladly handed out during the pandemic out of necessity, and also to support with the cost of living crisis that he mentioned. That was £350 billion-plus on the pandemic and a further £100 billion on cost of living challenges—about £3,700 per household—out of necessity, but we are now in a position where we can start to bring taxes down, which is what we did in the autumn statement. The OBR forecast that taxes as a percentage of GDP would fall by 0.7% as a result of the autumn statement changes, so taxes are clearly coming down now. Each fiscal event needs to be taken on its own, but the direction of travel is quite clear.
On the hon. Gentleman’s points about class 2, 3 and 4 contributions as set out in the relevant legislation, the Treasury has provided a report detailing the decisions not to make changes to class 2 and 3 rates and thresholds, and class 4 thresholds, for national insurance contributions for 2024-25. The decision was announced at the autumn statement and reflects the Government’s commitment to keeping taxes low to support working people to keep more of what they earn, as part of our plan to grow the economy. Class 2 rates will be maintained at 2023-24 levels for individuals to pay voluntarily to gain access to contributory benefits, as set out in the autumn statement.
The regulations ensure that tax credits, child benefit and guardian’s allowance increases are in line with September’s CPI rate, at 6.7%, thereby ensuring that those benefits keep their value in relation to prices. The NICs regulations set the limits and thresholds for the 2024-25 tax year, coming soon after the Government’s decision at the autumn statement to return money to taxpayers with a £9 billion tax cut. They allow for the collection of more than £170 billion of NICs to fund contributory benefits, including the state pension, and contribute to NHS funding. They are therefore vital to the livelihoods of all our constituents. I commend the regulations to the Committee.
Question put and agreed to.
Draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024
Resolved,
That the Committee has considered the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024.—(Nigel Huddleston.)